Extrapolating Economic Events to Equity Markets

The last 4 years have been unforgiving for equity investors. Markets have not been able to scale the peaks set in Dec 2007. So, typically, when we talk of equity markets giving superior inflation adjusted returns (15% as per long term average return of Sensex/Nifty), we give a time horizon of 2-3 years at least which classifies as a long term investment. So what has gone wrong? More importantly, will we ever get meaningful returns out of equity markets? Let us put a few things in perspective here. Every decade, we have a bull cycle and a bear cycle. Equity returns are non linear and hence deliver returns erratically. For instance, in the decade of 1990 to 2000, markets returned point to point 44% CAGR (fuelled by economic liberalisation) and in the Decade 2000 till date (actually 13years), markets have delivered a more humble 18% CAGR return (still best in class returns comfortably beating inflation). However, there have been very dry periods in between. Had the investor pulled out just before the rally in 2005/06? He would have lost money for the decade. The point I am making here is what is important for equity investors is not “timing” the markets but “time in” the markets.

Let us shed some light on the recent few years. 2004 onwards we had a bull market fuelled by a booming global economy which lasted nearly five years. Mar 06 onwards Inflation was the biggest issue for us and hence to prevent over heating RBI tightened rates from Mar 06 to Mar 08 from 6.5% to 9% and then when things were under control, cut from 9% to 4.75%. Again, to prevent overheating of the economy, from Mar 10 till Oct 11 RBI hiked key rates 13 times (4.75% to 8.5%). However, inflation has barely been managed.

Inflation’s unique issue recently has been that it started out as a supply side phenomenon and mutated into a demand side issue as well. What are we looking at going ahead? We will be having wage inflation for next 2 decades. 64% of WPI is manufacturing inflation so raw material effect will be rather pronounced. Food prices rose recently mainly in proteins n veggies not cereals. But food inflation will also be elevated above normal levels. For a growth economy like India, we have to learn to live with the new normal of elevated inflation for some time till we mature as an economy.

For now, commodity prices softening should help India as a whole since we are net importers but rupee effect is neutralizing all that. Rupee’s weakness understandably stems from the state of our economy and not necessarily from increasing trade deficit. So what has happened is in the last 2-3 years, corporates have been hit by twin evils of higher RM costs (thanks to massive global monetary easing) and Interest costs (RBI rate hikes & liquidity deficit).

Historic multiplier for GDP to corporate growth is 2-2.2x, so with an 8% growth, companies grew 12-15% barring 2009. Even now, with sub 7% growth they should grow 12-14%. This effectively means, barring a black swan scenario, in 4-5 years markets should double. Market multiples are driven by GDP growth and debt yields, both factors have caused de rating recently. An uptick in either could potentially better our equity gains going ahead.

So how do we get there? The approach has to change from the past, which was essentially fuelling the deficit and growth coming from consumption. Now, it should be more policy driven which would revive the extant private capex, thus creating a virtuous cycle and easing pressure on rupee and fiscal deficit. Pruning of government expenses like subsidies is a must. Regulatory road blocks which need immediate sorting would be the fuel issue for power plants, FDI in retail and aviation, implementation of GST and more astute pricing of diesel and LPG.  

So basically fiscal deficit, which government’s estimate will be 5.1% of GDP in FY13 (assuming present Rs95tn GDP growing at 8%) has to come down. My own sense is as things stand, fiscal deficit would be 5.9% of GDP, similar levels of FY12 (Rs6tn deficit on FY13 GDP of Rs101tn). So what can save us? For one, things under government control - non plan expenses. Major portion of which is subsidies, largely untouched in the budget. GOI assumes it will be Rs1.7tn in FY13, i.e. 1.7% of GDP. This has upside risks if oil under recoveries stay where they are. With total under recoveries of Rs1.1tn, where government may bear Rs0.7tn, it will be an uphill task. Fuel price hikes, reduction of subsidy (fuel, food, fertilizer) will help assail the gap.

The government is also assuming that it will undertake divestments in PSUs to the tune of Rs30bn in FY13 (aggressive in my opinion, given current market conditions). It s also assuming auction of excess spectrum and re auction of 2G to garner Rs580bn. This could be achievable if things go as per plan. Spreading tax receipts across various heads means that the GOI could garner its intended target of Rs459bn.

What is disturbing is most of the deficit will be fuelled by government borrowing which is crowding out private capex. The latter is essential for sustaining growth. Growth rates have reduced from double digits to low single digits. Addressing regulatory bottlenecks would help at this juncture more than monetary measures. We have not had serious capacity expansion in the last 4-5 years and many companies in various sectors are running at near peak capacities. This capex cycle would set the ball rolling on generating growth.

Money in equity markets is made when valuations are inexpensive. So when conviction is high and macros are good, we will not get good valuations. Key is to believe that these issues will be resolved in a reasonable time frame.  The issues enumerated above can potentially ease out in the next 2 years assuming oil prices are benign, policy measures are underway and private capex picks up.

Market multiples are attractive. We are presently trading at 12xFY13E, which is lower than our 14x median PER and the range has been 10x to 24x. Also M Cap to GDP ratio is 0.6x (India GDP $1.73tn, Nifty Mkt Cap $1tn). Historically this ratio has ranged between 0.25x to 1.1x and averaged 0.93x. So from a valuation stand point, we seem pretty well placed.

Tactically one can play rupee deficit themes in the short term through exporters like Pharma (Cipla), Auto (Bajaj), IT (HCL) , upstream oil (Cairn) and Metals (Hindalco). Medium term one can start nibbling in beta plays which are beaten down – capital goods (L&T, Crompton), private banks (ICICI Bank) and auto (Maruti, Bajaj).  Long term almost all sector leaders look attractive.

Cities I have lived in. Part II

So there is the concluding part of my Cities post....

Chennai

A negative image crops up to many people’s mind once they hear about this city. That image may be all about idlis, humidity, lungis, coconut oil and depressed old people. Well this city does have that, but its not just about all that!

I stayed in Chennai for a brief period of 17 months. I must say the city slowly grew on me. Perhaps it was the fact that my office was 7 mins drive from my residence (mind you a full 10mins in the evening on the way back!). Perhaps it was the fact that I loved my job when working there and the office atmosphere was conducive. Perhaps it was the fact that I was staying in the ex CM’s area Gopalapuram, which is awesomely posh. Anyways, things I liked about Chennai

1.       Good roads, uniformly good roads. Be it RK Salai, Beach Road, ECR, Anna Salai. All damn good! And devoid of speed breakers (are you listening Bangalore?)

2.       Proximity to locations I loved – Bangalore was 5hrs drive away, connected by an excellent 4 laned NH all the way (thank you Mr Vajpayee!), part of the Golden Quadrilateral. Pondicherry was connected by the scenic ECR and a mere 2.5hrs away. We had lot of other places like Tiger Caves with a pristine beach about an hour away and so on

3.       Food – Yes! Even Chennai has good food! Be it those uber soft idlis at Murugan Idli Kadai or Neer Dosa at Sarvana Bhavan. I loved that and the non veg south Indian food at Karaikudi. The malls also had decent Arabic fare and other Northie stuff. Honourable mention for Rayar Mess &

4.       Reasonable power and water supply

5.       Well networked buses and roads

6.       Lots of lovely parks. Had one near our house to walk in with a pond in the middle filled with ducks. AH BLISS!

7.       Beaches – Marina Beach & Elliots Beach. Former for walks and latter for chilling.

8.       Localities – Amazingly calm areas in Poes Garden, old Mylapore, Srinagar Colony, Beasant Nagar, Adyar, Gopalapuram, R A Puram.

Things I did not like

1. 1.       Humidity! Worst place in the world…will sweat in 3 nano seconds without the AC. I kid you not!
2. 2.       Language barrier – even though I can understand tamil and speak a smattering. It does get irritating at times especially when you want to express yourself
3. 3.       Not as cosmo as other cities so can be claustrophobic at times.

Namma Bengalooru!

Back to my birthplace after ages. Perhaps 2 decades. Things have changed. Earlier this place used to be green, cool and we could cycle all the way from RT Nagar to Sadashivnagar for our swimming sessions. Now there is an evil Mekhri Intersection (Still called Mekhri circle but a circle no more) in between with tons of traffic. Our calm area is now bustling with buses, 2 wheelers, autos, aliens and what not.

However there are still things I like about Bangalore –

1. 1.       Weather – bearable in summers (even tho its getting to be a tad hot!), cold during winter without the biting cold of the North and pleasant during monsoons/spring. Even during summer we get a spell of good weather when it rains a bit. Difference between Bombay/Chennai rains and Bangalore is that when it rains here it actually gets pretty cold
2. 2.       Food! – yes the typical sheekaaan and phalaan! (Seekh n Phaal). Apart from that the REAL dosa joints (not wannabe white tasteless ones produced by our neighbours!) like Vidhyarthi Bhavan, CTR, MTR etc. Good non veg from oldies like Imperial and Empire.
3. 3.       Getaways – Lot of scenic getaways from Bangalore though they tend to get crowded – Mysore, Ooty, Nandi Hills, tekking spots
4. 4.       Relatives and Friends. Chilled out people. More cosmo than any other city except Bombay.

Bad Stuff

• 1.       ROADS! Augh! Worse than Tier II and III cities and towns. These are craters with some tar in between…..damn it pisses me off. The screw ups in BBMP are soo busy emptying our coffers they are bankrupt to build good roads! And speed breakers every 2cms apart! WHY WHY WHY? 90% of them are illegal and the asswipes do nothing about it! Not a single…I repeat…not a single good road in Bangalore…it sucks man! The dimbulbs have even put speed breakers on a highway! (Bangalore Mysore). Dunno how many cars have been damaged that way…and its ironic that the road tax in Bangalore is amongst the highest in India. What are we paying for?
• 2.       Power Cuts and Water Issues – In a city full of lakes, water scarcity is sooo bad its almost funny. We can not call ourselves a metro unless you solve these things! Sucketh to the coreth!
• 3.       Policing – One of the most lackadaisical forces in the country. SC comes out with a rule on having lighter tints for cars, the jokers here altogether ban it! Why? Coz they are too lazy to check for the right tint with their light meters. And the list goes on…I guess a lot to do with it is the current government, where there has been no governance since the last 1-2 years with them busy infighting or trying not to be docked by the CBI.

Cities I have lived in. Part I

All my previous posts have been related to the equity markets. Boring for some, though fascinating for me. So now let me talk about INDIAN cities and how they have their own charm. I have had the fortune to live in four “metro” type cities in India. Loved every bit of it! Let’s start in Chronological Order (by dates) –

1.       Hyderabad – Very earthy charm. I stayed in this city for 3 years – completed my MBA here. Stayed in Banjara Hills – one of the poshest areas in the city so maybe I will be biased. What I liked about Hyderabad -   

a.       Very earthy charm, has the nawabi feel to the entire city

b.      Lovely roads, very few potholes, clean streets devoid of speed breakers mostly. Decent traffic, though bad drivers all across esp auto wallahs, but I guess that is universal eh?

c.       FOOD! Amazing food – Biryani, Tala Gosht, Patthar Gosht, Khubani ka meetha, Haleem, mini pans, mirchi, osmani biscuits, sweet irani tea…I could go on and on

d.      Lingo – I looove hydrabadi bataan! They have an idyllic twang to it which is infectious….aye haye….aisa kaisa!

e.      Hospitality – Hyderabadis are extremely good hosts! They may be fake at times but no denying their hospitality and mehmaan nawazi. Thumbs up for that!

f.        Places – Film City, Necklace Road, outskirt locations all pretty foor

Things I did not like

g.       Weather – extremely dry and hot during summers. But then, that’s God’s wish right? Nothing poor hyderabadis can do

2.       Mumbai – The city of dreams, maximum city! I stayed here for 7 long years, perhaps my longest stint at any place. Work beckoned me here and how I loved it! Stayed in all parts right from New Bombay (Nerul) to tony Napean Sea Road (Nr Malabar Hills) to Middle class Dadar (w). Bombay (I prefer to call it that!) is a mini country – you have a mini Tamil Nadu in Chembur/Matunga, mini Punjab in Sion Kholiwada…you get the gist! Things I liked

a.       Extremely professional people, no time waste, no hang ups unlike Delhi wallahs!

b.      Best policing in India – the traffic cops towed my vehicle thrice and fined me upteen times. Nowhere else in India have I ever been caught! Ever! Forget being caught for “smaller” offences like crossing the white line at the signal or changing lanes at the last moment, hats off to Mumbai Traffic Police!

c.       Best traffic and lane discipline – relatively, India’s most sensible drivers reside in Mumbai. They follow their lanes and do not break in between. Makes a world of a difference while driving

d.      Best infrastructure – Amazing roads, no power cuts, no water shortage (atleast where I stayed). Gotta hand it to BMC!

e.      Things to do – you never run out of options. Juhu Beach, Marine Drive, Worli Sea Face, Joggers Park, nearby destinations like Lonavla, Mahabaleshwar, Mandwa, Alibaug.

f.        FOOD! The best variety in India! Any region food you get it all here. Even Kashmiri and NE Cuisine! Best I liked were Sarvi Kebabs in Nagpada, Soup & Salad buffet at Jazz, Marine Drive, Biryani at Jaffer Bhai’s Delhi Durbar, Raan at Persian Durbar, Vada Pav near Kirti College, Bhutta at Marine drive in the rain, Golden Thaali, Sabudana Wada n Kothimiri Wadi at Prakash in Dadar…Kheema Pav at Olympia…Berry Pulav at Brittania…sigh…the list can go on and on but that’s a separate entry

g.       Best mass transit system – the trains are damn efficient and take you anywhere with minimum fuss, if you can bear hundreds of bodies pressed against you! Very efficient service and 99% on time, local trains are a boon for the insane travel distances in Bombay

h.      Energy – full of life, always on. The City never sleeps. And everyone from the taxi wallah to the nukkad ka chai wallah is very astute and smart. Knows how to keep a customer happy.

i.         Lot of culture – Walk by Fort on a Sunday (its less crowded then!) or Colaba, you will feel the old world charm! And imagine staying in the same city where Sachin, Shah Rukh and Ambanis stay!

Bad things

a.       Traffic – Despite the lane discipline and the good roads, it’s a pain to drive long distances in Bombay. Never ending traffic and long distances contribute to road rage

b.      Disturbances – I will be politically incorrect here. Lot of Marathi versus the world fights and everyone takes up a cudgel. Be it MNS or Shiv Sena, causes lot of irritation. I was in the midst of the Local Train blasts and the attack on Taj & Hilton (our office is right next door). Lot of mental pressure then

c.       Rains – Crazy rains throw life out of gear especially if you are an office goer. Endure mindless traffic jams, flooded roads or jammed trains. Not good!

d.      Real Estate – Unaffordable. Enough said. One MAIN reason for me to look for a much higher pay if I work there again to maintain the same lifestyle in other cities. Either pay up or travel 500hrs a day.

A lot of negative news all over the globe and in India. So what is the problem here? Simply put, assume Government is a person. It has borrowed beyond its means. Which means it has more expenses than the revenues it can generate. Which is known as Fiscal Deficit. Also, we are the only country in Asia to run a current account deficit, which means we are saving lesser and investing even lesser.

Like Theoden (King of Rohan - Lord of the Rings) mentions - "How did it has come to this?" (I LOOOVE LOTR!!! Except the silly hobbit Frodo...but that is a seperate post!)

Well, as a nation, we are always capital starved. We grow if we have abundance of capital. But for a typical growth or emerging economy like ours, we tend to overheat occasionally. This requires a firm pat on the head by RBI in the form of interest rate hikes, which in turn cools inflation till things are manageable. So in between the 5 yr bull market of 2004 to 2009, we had an interest rate hike period between Mar 06 & Mar 08. Then a series of cuts all the way till sub 5%.

Of late when inflation started rising again from Mar’10 to Oct’11 we had a series of 13 hikes all the way back to 9%. So this saga continues and there is nothing new in it. Only thing is, this time we were dealing with some mutant form of inflation. A culmination of what started out as supply push and then also involved demand pull inflation. RBI was fighting with ineffective weapons to counter this. What we needed a year back and what we need NOW are fiscal reforms. Simple. There is only so much RBI can do!

So in conjunction with the global weakness, where governments tried to revive economies by pumping money, Companies back home got hit by the twin evils of higher RM costs and Interest costs. Now they are also getting hit on the growth front as private capex has all but vanished due to government crowding out by its massive borrowing program.

 We have enough comfort on valuations. Sample some of this-  

1.      The benchmark indices are trading at below median values. Nifty has traded between 10x and 24x PE band with median of 14.5x, now we are quoting at12x PE (FY13E). A good way of seeing that markets are undervalued.

2.      Another measure we can look at is market cap to GDP ratio. At its peak this ratio was 1.2x and averaged 0.9x and presently its 0.6x, indicating markets are not overvalued.

3.      Market PER of 12x translates into a earnings yield of 8.3% which is roughly equal to G Sec yield. It was below G Sec yield for the past few months. Historically whenever this has happened, we have had mean reversion i.e. markets usually bounce from those levels.

4.      If earnings growth continues at same pace and markets do not de-rate further (less than 12x), then we could see doubling of current market levels in a span of 5 years. This level could move higher if the PE re rates from 12x to 14x (median levels).

I sincerely believe that corporate earnings in India are very resilient. So historically earnings are twice of GDP growth. Even assuming a piffling 6.5% growth this year we should be in the 12-15% range for corporate earnings.

So why are we not buying by truckloads? Well, market multiples are a funny animal and are driven by GDP growth and debt yields, both factors have caused de rating recently. There are serious issues which need to be sorted at the macro level and those take time.  While broadly it’s the twin deficits, other micro issues would be sorting out are the fuel issue for power plants and regulatory road blocks, FDI in retail and aviation, implementation of GST etc. to name a few.

Fiscal Deficit – scary scene when the official figure is Rs5.1tn (5.1% FY13E GDP), my figure would be Rs6tn fiscal deficit on my own GDP estimate so that will translate into a deficit of 5.9%. Similar to FY12, UNLESS we have oil prices coming off drastically or the GOI does a hefty re auction of spectrum or sells a lot of FPOs. Very difficult to see that happening, right?  Oil prices would be crucial here on the subsidy front as the Govt. has targeted subsidies to be 1.7% of GDP in FY13E i.e. Rs1,730bn. Oil may have Rs1,130bn under recoveries in FY13 of which how much the government bears is a fluid question.

But then, money in equity markets is made when valuations are inexpensive. Valuations get inexpensive only during times like these! So when conviction is high and macros are good, we will not get good valuations. Key is to believe that these issues will be resolved in a reasonable time frame.  So it is more of being patient and holding your nerve in these markets. And yes, corny as it may sound….believing in the India Growth Story! Happy Investing…

Ok, so was doing a quick review on various stocks and here is how they look –

Auto sector

1.       MUL (33%) FV 1600 – play on base effect, reasonable valuations at exit multiple of 15x. Headwinds can be currency. Tailwind of RM can play.

2.       Hero Motorcorp – Story largely done and dusted, will be mkt performer with 11% upside

3.       Bajaj Auto – 18% upside for FV of 1900. Can give it 15x exit multiple. Lot of new launches in FY13, export presence hedges it for weaker currency & KTM is the icing.

4.       Ashok Leyland – valuation wise has good upside but cautious w.r.t. to the CV cycle, though on the ground offtake happening. Div yield is the sweetener.

5.       Exide – Will languish at these levels for a couple of quarters but structurally sound

6.       M&M and TTMT – no specific triggers, could see a 15% upside purely on valuation terms

Cap Goods

1.       Only LT seems to be comfortable for FV 1600, a good upside but need to be invested. Headwind of order inflow. But aggressive guidance given by mgt of 15-20% inflow growth which may come in, as FY12 slippages will count plus it is L1 in some bids. E&C has been doing well as a vertical. More insulated than BHEL.

Banks

1.       PNB – not getting comfort on restructured book though looks comfortable in valuations

2.       BoB – only PSU I like. FV 930 on 1.3x BV FY13E. Upside of 27%. Has had some slippages but conservative management and more than adequate cover gives us comfort. Growth in book also better than other PSUs

3.       Axis – Riskier bet due to chunky book. But an upside of 24% from here on 1.5x book. FV 1300.

4.       ICICI Bank – Largest upside amongst pvt banks nearly 47% for FV of 1200 – 2x book. Seasoned NPA profile should hold it in good stead.

5.       HDFC Bank – the king of banks still has about 20% long term upside if we are willing to give it a 4x P/BV multiple for FV of 600

FMCG

1.       Asian Paints, Nestle, Colgate and Unilever all have fantastic growth and business models but little room for upside given the valuations

2.       ITC looks good for another 10% from here given the recent GOI ruling which may enable it to maintain margins on price hikes. (Ad valorem duty scrapped for fixed duty). FV250

3.       Dabur looks good and is putting its distribution strategy in place with its ayurvedic portfolio. FV 120 should give us 14% upside

IT

1.       HCL has the biggest upside, decent numbers, capitalizing on vendor churn. 15x multiple may be a little too soon for this company but on that we get a FV of 570 – 18% upside.

2.       TCS really rich valuations, no buy at 18x multiples, marginal upside at 20x. Difficult to assign in that in current times, but investors have little option with INFY underperforming.

3.       INFY looks good only from a 24 month perspective else valuations do not support.

Power

1.       NTPC – I see a 20% upside based on valuations. Can give it exit P/BV multiple of 1.5x for FV of 175. Stock got beaten down due to lesser PLF thanks to lack of coal availability. That should improve in FY13. As regards capacity expansion, atleast should put in 3GW for FY13.

Oil & Gas

1.       HP/BP become situational plays for price hikes. Cairn is perfectly prices in. ONGC is a function of government subsidy nowadays.

2.       RIL – it’s a technical issue. Will not revive till positive news flows in on KGD6. Buyback offer may not stem the slide. However, may get reversal on recent fine imposed by GOI.

Portfolio Performance

Just a follow up on my last post - My portfolio returns in the last six months below. Please bear in mind this is a concentrated portfolio not aligned to any benchmark however for comparison I have compared it with Nifty. Also, portfolio initiated in mid october with continous ramp up of AUM from Nov to Apr. I guess clearer picture would be to see this portfolio six more months down the line once it is properly seasoned.

	Return	Benchmark Return	Alpha
October-11	-2.08	9.84	-11.92
November-11	-2.59	-9.28	6.69
December-11	-7.33	-4.30	-3.03
January-12	-3.05	12.43	-15.48
February-12	7.97	3.58	4.39
March-12	1.66	1.9	-0.19
April-12	0.38	0.9	-0.56

So you can see 7 data points. 3 months of under performance, 2 months of out performance and 2 flat months. October was when there was very little in the portfolio. Power Grid and BoB did well while PFC, Coal India, BHEL underperformed.

Nov was pretty good in terms of max Alpha. 669bps out performance to Nifty. Largely thanks to Power Grid, BoB, TCS, CIL, LT and ONGC.

Dec a drag due to RIL PFC, LT and Adani Ports (some Scam news). Used the opportunity to buy more.

Jan was worst month because markets rallied, was still in portfolio build up mode and BHEL PFC continued to lag. 

Feb was again a 439bps outperformance to Nifty mainly due to rally in BoB PFC (used to exit partially), LT (sold off to buy later), TCS etc. 

March flattish as gains from HUL ITC were set off by weakness in MM which held steady so far. I continue to hold it. Mid caps like TTK also underperformed but next month they performed , used to exit.

April Auto pack good with hero doing well and TCS steady. Sold Sun, Nestle and TTK for decent gains. Drag due to LT BHEL Hindalco.

Remain Invested!

Last I posted was two months back, how time flies! Anyways, last time I posted, I did mention about how hot money could flow out pretty quickly and be ready to redeploy. Well that theme played out partially with FIIs getting bored with markets post the Budget and RBI Policy. The government chipped in and spooked them some more with the GAAR regulations which threatens retrospective taxation and may bring P Noted within their ambit. Also the rupee is not helping. Its in free fall mode as we speak. So what happened was the beta play of Jan and Feb stopped. People got scared with the massive deficit numbers and sticky inflation. RBI’s outlook more or less indicating this rate cut is all you get for the next 2 quarters and falling growth led to a nose dive into defensives. End result? Broader markets remain range bound. FMCG continues to outperform. Nestle, ITC, HUL take a bow.

So where do we go from here? Q4 numbers are also more or less in line, done with. Market for the interim atleast is searching for triggers. And not many are too encouraging. S&P downgraded sovereign rating of India to BBB- Negative outlook. Now that will spook the firangs even more!

Remain invested. Good thing is from a valuation perspective 13x one year forward gives us comfort. So downside to that extent is protected. What we should bear in mind is probably a significant time correction still ahead of us for the next six months at least. There would be interim opportunities in the meantime. So all is not lost! Stay invested, stick with blue chips for stability. Introduce beta in the portfolio through quality private banks, who are doing surprisingly well and available at decent valuations. Add beta through auto, a proxy to consumption and valuations not as demanding as FMCG. Do take a bit at cap goods through known names like Larsen and Crompton. For the interim, to hedge the deficit, buy exporters like Cipla, TCS. Pick up some quality mid caps along the way, they have really outperformed the markets by a large margin. Risk reward in some cases better than large caps.